Capitalism (Laissez Faire)

Laissez faire (Adam Smith) was used to describe the belief that the government should keep their hands off the economy.

• Supported by liberals who believed “there were bound to be poor people in society”.

• Typical laissez faire factory…– Means of production owned by capitalists– Owners want to maximize production

• Low wages• Expensive product• If there is an excess of labor people are

fired

– Workers are seen as a piece of machinery

Ideas to Battle the Evils of the Industrial Revolution

Democratic Socialism• Turned against Laissez Faire policies and urged

government reform to help the long suffering workers.• Typical factory run by the beliefs of a democratic

socialist…– Means of production still owned by capitalists– Minimum wage laws would be passed to create higher wages– Reduction in working hours– Safety conditions in factories– Labor unions allowed to operate in the interest of the workers,

etc.• They believe that while everyone may not be born with

equal abilities, all are equal as human beings and should therefore be guaranteed the basic necessities of life.

Communism• Communists believe that the inequality capitalism should

be overthrown by workers (proletariat) in a violent revolution.

• Ultimately capitalists are out to exploit the “proletariat” to make a profit.

• Factory run by the beliefs of a Communist…– Workers would overthrow the bourgeoisie (owner)– Temporary dictatorship is set up to create stability– Once the stability exists the government “withers away” and

society becomes a workers paradise.• State owns the factory• No profits simply make what you need• Workers are all paid equally. (From each according to their ability, to

each according to their need – Karl Marx)

• Karl Marx : The Communist Manifesto

Ideas to Battle the Evils of the Industrial Revolution

SWEDEN

• Both private & public enterprise

• Wealth to be distributed evenly

• Goal is that every person has a high standard of living

PRIVATE OWNERSHIP

• Almost 100% of agriculture

• Private enterprise employs 90% of all industrial workers

• Produce 95% of manufactured goods

• Many multinationals (IKEA, Saab, Electrolux, Volvo)

• Exporter of technology

GOVERNMENT CONTROLS

• Controls some essential services– Natural resources, transportation, energy, railway,

water, power, etc.)

• Atomic energy state monopoly• Some control because of social policy to prevent

company bankruptcies and to maintain high employment.

• Use fiscal and monetary policies (loans, interest rates, subsidies, taxes.)

GOVERNMENT PLANNING

• Purpose of regulations is the desire for the free enterprise to run smoothly

• Use five year plans (not official govt. policy)– Forecast and project for economic growth– Communicate to private firms– guidance

• Methods of indirect planning (Indicative Planning)– The use of government targets to coordinate private and public

economic decision making.• Methods of direct planning

– Full employment/freedom from poverty– Social welfare programs

THE ROLE OF UNIONS IN THE SWEDISH ECONOMY

• Cooperation of Swedish leaders in business, labour and government.

• 80% of workforce is unionized• Role of unions is to abolish the negativity of

capitalism.• Co-determination Act of 1977

– Gave unions a role in industrial decision making. (i.e. wage earner funds)

– All decisions are negotiated

THE CRADLE TO GRAVE WELFARE STATE(Womb to Tomb)

• Jobs, housing, adequate income, medical care• Free pre-natal care, family allowance,

maternity/paternity allowance• Free nursery, low cost daycare, funded higher

education• 5 week vacations, old age pensions• Goal is that every person has a high standard of

living

Economic Equality in Sweden

Health:

• 90% if workers are sick

• Free health care

• Dental care free for under 19 (40% over 19)

• Travel to and from doctor covered

• Patients pay only 4% of all medical fees.

Education:• Free to secondary (lunches included)• Grants & loans to post secondary

Pensions:• Receive pension 65+ (65% of highest income years.)

Housing:• Housing subsidies for families with children.• Construction regulated by government to ensure

safety.

Unions:• Operates U.I.• Government paid scholarships• Training• Relocation (travel expenses)

Unemployment Rates• Sweden (2004) 3-4 %• Canada (2004) 7.5 %

BUT….

• Sweden’s tax rate is considerably higher than any other country in the world.

THE ECONOMIC CRISIS IN SWEDEN

• 1970 deficit was increasing, high inflation, high unemployment

• 1982 the Social Democratic Party is elected– Depression– Persuaded Swedes to save– Produced more goods, decreased consumption of consumer

goods.– Invest surplus money in countries economy.– Reduce govt. $, lower interest rates

• Used capitalist policies to maximize production and socialist policies to redistribute wealth.

• RESULT= economic growth

• Probably the closest Canada has come to a pure market system was during the 1920s.– During that decade governments followed Adam

Smith's advice, and left the privately owned economy alone.

– Because government did little, taxes were low.– Then came the "crash of '29" followed by the

Great Depression. Most Canadians experienced major economic hardships throughout the 1930s.

• Business owners and workers began to feel that the government should do something to prevent such a national collapse again and to provide help to helpless individuals.

• Since then, the Canadian government's role in the economy has grown steadily so that in the 1990s, Canada has become very much a mixed economy.

MIXED ECONOMIES (CANADA)

Look at some of the programs run by governments in Canada today:

• stabilization of the economy to prevent booms and busts (Monetary Policy)– control of bank interest rates– Control $ supply

(Fiscal Policy)– increase or decrease taxes– increase or decrease

government spending

BANK OF CANADA

Government Laws & RegulationsAgriculture

Govt. marketing boards• Influence prices• Crop controls• Quotas to limit production• Food inspection• Negotiate sales of wheat to foreign nations

Regulation of the market• quality controls• some price controls

• prevention of monopolies to preserve

competition

Deregulation• A reduction of govt. restrictions on

business enterprises. (neo-conservatives)

Redistribution of wealth to provide security

• old age pension• unemployment insurance• child tax credit• welfare

Provision of financial support to businesses

• subsidies to failing businesses

Provision of public services (universality)

• schools• Police• fire control• Hospitals• parks

Transfer ProgramsProgressive tax systems

Government Owned Business

Crown Corporations (nationalized industry)

• CBC Radio and TV• Royal Canadian Mint• Canada Post Corporation

Reasons…• Control an area of the economy which is vital

to general welfare of nation.• To provide goods/services private

entrepreneurs are unable to provide.• Earn income for the government.• To rescue companies from bankruptcy.• Help stabilize economy.

Privatization• Keynesian Methods (deficit financing) created a $580 billion

dollar deficit by 1996.• Canadian govt. began cutting social programs.• Selling of state owned companies to private industry.

(Thatcherism/Reaganomics)• Create more efficiency in govt.• Cut bureaucracy in govt.Mulroney 1984-1992• Privatized 39 crown corps.Prov. Govt. Alberta• Liquor• Licensing• Telephone

Direct Taxes: those paid by citizens. (GST/Income tax)

Indirect Taxes: hidden in the price of goods. (excise tax)

• There are many direct and indirect controls over our economic system.

• The good news is that these many government programs and regulations have provided us with increased stability, security, and equality.

• The bad news is that we have lost some individual freedoms and that the cost to taxpayers is high.

What role(s) should the government play in the

Canadian economy?